2009 Best Practices In Transportation Part 2

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You are viewing presentations from conferences that I have attended. Please enjoy & if we can help you with any logistics projects in the Americas please contact me at 678.364.3475

Bill was also on the Board of Directors for the St.Vincent DePaul Foodbank in Roseville California helping with the fund raising and meals to the poor program. While based in Northern California he was successful in fund raising programs for the Crusade of Mercy and helped Father Dan Madigan at the Sacramento Food Bank also. For 2008, Bill is a member of the Board for WORKTEC on also an Advisory Board Member for Boys and Girls Club for Metro Atlanta-Clayton County Chapter. See www.worktec.biz or www.bgcma.org . Bill is also on the Board of Directors for the Southeastern Warehouse Association & represents Georgia for 2010-2012.

Regards,

Bill Stankiewicz
Vice President and General Manager
Shippers Warehouse
Email: williams@shipperswarehouse.com
www.shipperswarehousega.com
http://www.linkedin.com/in/billstankiewicz2006
http://twitter.com/BillStankiewicz
http://www.topexecutivesnet.com/index.aspx

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2009 Best Practices In Transportation Part 2

  1. 1. MIT-Center for Transportation & Logistics Empowering Fact-Based Decisions Across Your Supply Chain “Drive supply chain innovation and accelerate its adoption into practice.” – Founded in 1973 as an interdisciplinary unit in the MIT School of Engineering – Conduct research in transportation, logistics and supply chain management – Engage over 60 faculty and research staff from 11 MIT departments & schools – Work with more than 50 companies across the world through the Global SCALE Network• Master of Engineering in • SC2020 Logistics (MLOG) • MIT FreightLab• MIT-Zaragoza Program in • Security & Resilience Logistics (ZLOG) • Transportation Mgmt.• ESD SM in Logistics • Emerging Markets• ESD Ph.D. in Logistics • Energy/Carbon• Executive Courses • Demand Mgmt. • SC Risk Mgmt. • Three-tier partnership model • Scenario Planning • Strategy Alignment • Exchange community • Education Partners • Collaborations • MIT AgeLab • Communications 1 © Copyright 2009 Chainalytics, LLC.
  2. 2. Key Question Empowering Fact-Based Decisions Across Your Supply Chain What factors influence transportation rates and how much? Primary Business Sector (percent of membership)• Various methods are available . . . – Anecdotal Foods Consumer 19% Products – Survey 14% Durable – Econometric Modeling Goods Beverages 14% 16% Other 6% Industrial Whlsl/ Retail 11% Distrib 12% 8%• Econometric Modeling – requires lots of data – Annual data set contains >11M shipments for $11B in spend – 62 different companies varying in TL spend from $12M to $500M+ – Covers USA, Canada and in and out of Mexico – Equivalent to ~ 2.5% of the total North American intercity truckload market 2 © Copyright 2009. Chainalytics, LLC.
  3. 3. Econometric Modeling Empowering Fact-Based Decisions Across Your Supply Chain• Objective: – Develop an equation to predict the cost per load for TL freight, given characteristics of the freight• Technique: – Find the ‘best-fit’ line between all of the observations using Weighted Least Squares (WLS) Regression – Develop a “base model” – Test various policies, practices, and processes to capture impact• Complications: – We never know which characteristics are important – We can never capture ALL of the factors that influence cost – The relationships can be very complex – The data always have problems – some that are not easily fixed 3 © Copyright 2009. Chainalytics, LLC.
  4. 4. Testing Out Policy Impacts Empowering Fact-Based Decisions Across Your Supply Chain Is there a benefit to being “carrier friendly”? How do I even measure this? What if we try to capture the accessorial policy. Value Ranges Cost Impact Third Quartile First Quartile Range 1-3Q Responses Maximum Minimum MedianAccessorial Units LHD LHRPower Unit Detention $/hour $ 23 $ 50 $ 52 $ 60 $ 80 $ 10 48 $ 4 $ (17)Drop Trailer Detention $/day $ 25 $ 25 $ 35 $ 50 $ 136 $ 25 29 $ 16 $ 73Driver Assisted Loading $/event $ - $ 60 $ 75 $ 80 $ 100 $ 20 9 $ 23 XDriver Assisted Unloading $/event $ 60 $ 75 $ 75 $ 93 $ 125 $ 18 16 $ 22 XDriver Loading Wait Time $/event $ 45 $ 49 $ 50 $ 55 $ 70 $ 6 4 X XDriver Unloading Wait Time $/event $ - $ - $ 30 $ 50 $ 70 $ 50 11 X XVehicle Ordered, Not Used $/event $ 100 $ 150 $ 238 $ 250 $ 300 $ 100 40 $ (10) $ 64Layover $/event $ 150 $ 250 $ 275 $ 400 $ 500 $ 150 30 $ 14 $ (3)Redelivery $/event $ 20 $ 75 $ 113 $ 125 $ 225 $ 50 16 $ (9) $ (56)1st Stop Off Charge $/stop $ 35 $ 60 $ 75 $ 90 $ 100 $ 30 36 $ 12 $ 572nd Stop Off Charge $/stop $ 35 $ 75 $ 100 $ 125 $ 175 $ 50 38 $ 22 $ 523rd Stop Off Charge $/stop $ 35 $ 100 $ 125 $ 156 $ 300 $ 56 36 $ 27 $ 614th Stop Off Charge $/stop $ 55 $ 113 $ 150 $ 213 $ 300 $ 100 23 $ 40 $ 245th Stop Off Charge $/stop $ 55 $ 100 $ 125 $ 175 $ 300 $ 75 13 X X6th Stop Off Charge $/stop $ 55 $ 95 $ 138 $ 181 $ 300 $ 86 12 X X7th Stop Off Charge $/stop $ 55 $ 95 $ 138 $ 181 $ 300 $ 86 12 X XStorage Fee $/event $ 25 $ 35 $ 40 $ 50 $ 100 $ 15 10 $ 18 $ 134 4 © Copyright 2009. Chainalytics, LLC.
  5. 5. Testing Out Policy Impacts Empowering Fact-Based Decisions Across Your Supply Chain • Individually, there is some limited rate impact – Hard to separate out each individual policy/charge – Potential for firms to have the same “footprint” • Looking at the collective effect – Shippers with charges consistently worse than the median = less friendly – Do these shippers tend to pay more or less in terms of line haul rates? Firms by Percentage of Accessorials & Policies > Median 16 Shippers with more than half of theirNumber of Firms 12 accessorials “worse” than median values 8 paid ~3-5% more per load. 4 0 0% 20% 40% 60% 80% 100% Percent of reported policies above the median 5 © Copyright 2009. Chainalytics, LLC.
  6. 6. Agenda Empowering Fact-Based Decisions Across Your Supply Chain• How should shippers procure transportation?• What impact do policies and practices have on rates?• How should a shipper handle fuel volatility? 6 © Copyright 2009. Chainalytics, LLC.
  7. 7. Predicting Fuel Prices Empowering Fact-Based Decisions Across Your Supply Chain• Delphi Study with ~30 Transportation professionals in April 2008• What will the price of diesel be at the end of the next 4 quarters? Fuel Price Delphi - Round 2 (4/2/08) $4.50 Maximum Forecast Median Forecast $4.25 $4.00 Cost per Gallon $3.75 $3.50 Minimum Forecast $3.25 $3.00 Apr-08 Jul-08 Oct-08 Jan-09 Apr-09 1st Quartile max min 3rd Quartile Source: Chainalytics 2009 7 © Copyright 2009. Chainalytics, LLC.
  8. 8. US Department of Energy Empowering Fact-Based Decisions Across Your Supply ChainEnergy Information Administration’s Outlook for 2009 (published June 2008)• According to EIA’s June 2008 Short-Term Energy Outlook, national average retail diesel fuel prices will peak in the third quarter of 2008 at $4.75 before falling to $4.11 per gallon by the fourth quarter of 2009 . . . However, the recent volatility seen in crude oil and petroleum product prices, if continued, may significantly alter these price projections.” Source: http://www.eia.doe.gov/bookshelf/brochures/diesel/ 8 © Copyright 2009. Chainalytics, LLC.
  9. 9. Fuel Price Estimates Empowering Fact-Based Decisions Across Your Supply Chain National Diesel Prices - 2004 - 2009$5.00$4.50 4/08 Shipper Estimates 6/08 US DOE Estimates$4.00$3.50$3.00$2.50$2.00$1.50 04 05 06 07 08 09 04 05 06 07 08 4 5 6 7 8 05 06 07 08 09 -0 -0 -0 -0 -0 r- r- r- r- r- r- l- l- l- l- l- n- n- n- n- n- ct ct ct ct ct Ju Ju Ju Ju JuAp Ap Ap Ap Ap Ap Ja Ja Ja Ja Ja O O O O O 9 © Copyright 2009. Chainalytics, LLC.
  10. 10. We never learn . . . Empowering Fact-Based Decisions Across Your Supply ChainSource: Scenarios: An Explorer’s Guide, Shell International 2003. 10 © Copyright 2009. Chainalytics, LLC.
  11. 11. Fuel Impacts Empowering Fact-Based Decisions Across Your Supply Chain Change in Fuel Costs, Linehaul Costs, ALOH, and FSC Paid 200% 180%Percent Change from 10/1/07 160% 140% 120% 100% 80% 10/2/07 11/2/07 12/2/07 1/2/08 2/2/08 3/2/08 4/2/08 5/2/08 6/2/08 7/2/08 8/2/08 9/2/08 Week of Year ALOH ACPM DryFSCPaid Fuel ($/gal) Comparing each to the value as of 1 Oct 2007 – note that the FSC paid increased faster than the actual cost of fuel. 11 © Copyright 2009. Chainalytics, LLC.
  12. 12. Fuel Impacts Empowering Fact-Based Decisions Across Your Supply Chain Linehaul CPM versus Cost of Fuel over Modeling Time Period 14 JUL 08 $1.530 $1.520 1 OCT 07 $1.510Linehaul Cost per Mile $1.500 29 SEP 08 $1.490 $1.480 Underlying Line Haul $1.470 Rates were modified! $1.460 No longer linked to fuel. $1.450 $3.00 $3.20 $3.40 $3.60 $3.80 $4.00 $4.20 $4.40 $4.60 $4.80 $5.00 Fuel Cost per Gallon Source: Chainalytics 2009 Each point represents the average line haul cost per mile plotted against the cost of fuel for that week – from Oct 2008 to Sep 2009. 12 © Copyright 2009. Chainalytics, LLC.
  13. 13. Fuel Impacts Empowering Fact-Based Decisions Across Your Supply Chain Fuel versus Linehaul Costs $1.70 Oct 2008 $1.65Linehaul Cost ($/mile) $1.60 Oct 2006 July 2008 Nov $1.55 2007 Mar 2008 $1.50 $1.45 $2.25 $2.75 $3.25 $3.75 $4.25 $4.75 Cost of Fuel ($/gal) Longhaul Dry Van Longhaul Refrigerated Van 13 © Copyright 2009. Chainalytics, LLC.
  14. 14. Fuel Surcharge Programs Empowering Fact-Based Decisions Across Your Supply Chain Parameters for TL FSC programs: Effective Fuel Surcharge Programs:Base or Peg Rate – Threshold cost of fuel per gallon LHD: $1.238 Base with $0.058 Escalator and $0.01 SurchargeEscalator – Increase in fuel costs that triggers surcharge LHR: $1.240 Base with $0.054 Escalator and $0.01 SurchargeSurcharge – Amount paid to carrier in dollars per mile LHI: $1.258 Base with $0.066 Escalator and $0.01 Surcharge Impact of FSC Programs $0.80FSC Paid to Carrier ($/mile) $0.70 $0.60 $0.50 $0.40 $0.30 $0.20 $0.10 $- $(0.10) $2.00 $2.25 $2.50 $2.75 $3.00 $3.25 $3.50 $3.75 $4.00 $4.25 $4.50 Cost of Fuel ($/gallon) Min 25th Median 75th Max 14 © Copyright 2009. Chainalytics, LLC.
  15. 15. Fuel Impact on Benchmark Empowering Fact-Based Decisions Across Your Supply Chain• How does a shipper’s FSC program influence line haul rates? – Two Schools of Thought: Compensating or Independent Line Haul = $1.20 FSC = $0.34 Line Haul = $1.20 FSC = $0.34 Shipper A: Line Haul = $1.26 FSC = $0.28 Line Haul = $1.20 FSC = $0.28 Shipper B: Shipper A = Shipper B Total Cost = $1.54 e sent as ping requests to other nodes. $1.48 Case 1: LH and FSC Compensate Case 2: LH and FSC are Independent• Previous Analysis – Prior to this model, FSC programs mainly varied with respect to the Escalator. – In Model 1 of 2008 we found that shippers with a $0.06 Escalator paid had higher line haul rates (~$0.125 per mile) than shippers with a $0.05 Escalator. – This year – there was greater variability across all dimensions. Direct comparisons of programs proved inconclusive. 15 © Copyright 2009. Chainalytics, LLC.
  16. 16. Conclusions Empowering Fact-Based Decisions Across Your Supply Chain• The more shippers expose in the Fuel Surcharge bucket the better off they are, in total rate paid – Keep the peg or base low – Keep the escalator in line with estimated fuel efficiency• The overall impact of your FSC program is only about 1%-2% of the total rate paid• Predicting the future price of fuel is futile – Create a fair FSC and stick to it 16 © Copyright 2009. Chainalytics, LLC.
  17. 17. Empowering Fact-Based Decisions Across Your Supply ChainBest Practices in Transportation Procurement Gary Girotti Vice President Chainalytics LLC Dr. Chris Caplice Executive Director MIT Center for Transportation & Logistics March 3, 2009 17 © Copyright 2009. Chainalytics, LLC.

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